Greedy Goblin

Friday, February 17, 2017

The only way to raise salaries in capitalism

People are still not getting why it's crucial to deport the illegal immigrants and decrease the number of legal immigrants. Not because they "take the jobs". Most advanced countries have near-perfect employment. The unemployment rate of the US is less than 5%. Also, people aren't just workers, they are also consumers, creating further jobs, so jobs will never run out.

The reason why immigrants must be evicted in a swift, shock-like move is to create worker shortage. The only way salaries rise in capitalism if the workers are in short supply and companies have to lure workers from the competition with higher salary offers. This is happening in Hungary right now as large part of the workforce is working in the UK and Germany, leaving awful lot of empty positions in Hungary. Even low skill jobs like shop shelf packer is in short supply and gets raises all over the sector to keep/lure workforce.

Sure I realize the irony of Hungary's job shortage is due to de-facto immigration to the UK and Germany, but the effect on the British and the German workforce is not my problem. It definitely seems like the British can take care of themselves.

Immigrants are low wage earner population who can be removed without having to give them welfare or have to deal with their protest votes. They are not economically different from other low wage earner populations, but they can be removed without political costs. By doing so the wages of everyone else will rise.

No doubt that employers are all out against Trump, raising the salaries of domestic workers will be paid from their pockets.

21 comments:

You are right that wages are increasing in Hungary, but most of the workers has to work in more than one role at the same time, to replace the missing labour. This result in unpaid overtime and extreme stress.

Plus many of the missing jobs are in the fields like healthcare or IT, where an average person cannot replace the missing labour due to the lack proper education. Lack of workforce also means that companies has to lower their standards, risking their competitiveness.

Also the rising housing costs are eating a decent part of that extra salary. The healthcare is in an absymal condition, enterprises are exposed to the government's mood (law's can be changed without social or professional consultations within a few days), and growing the business is really difficult without available workforce.

This is not true. Your explanation is too simplistic and does not work in real world.

One way salaries go up is by innovation. When a new field is created new positions open up that were not available before and they need people to fill them. Since it's a new field nobody has any skills in it so the salaries get very high. One example would be machine learning and autonomous vehicle engineers.

Second way is natural decrease in working people. Pretty sure the birth rate of the native European population is below replacement so as more people die more jobs will open up.

Finally just cutting immigration does not necessarily increase salaries. For example in the US agriculture is heavily subsidized. It is also a sector with large illegal immigrant workers. If they are kicked out, then natives will have to either accept the same prices, pay more taxes because heavier subsedes are needed or unsustainable farms will close. Same logic could be applied to other areas too. People might have higher salaries yes, but it does not necessarily bring any benefit because price of goods is going to be higher.

Which scenario is more likely one because countries don't exist in isolation but the interactions between production, trade and migration are complicated.

@Zoltán: no one questions basic economics. It's obvious that by free movement of workforce, products and capital the total GDP will increase. But the country leaderships are more interested in - increasing the GDP/capita of their country, ignoring other countries- decreasing the wealth inequity, so they are OK with $2 loss on the top 1% if it means $1 increase for the bottom 50%

@Anonymous: of course there are other ways to increase worker shortage. But a politician can't invent stuff to open a new field (which is open for highly trained professionals anyway and not for ordinary folks)

Decrease of the population doesn't only decrease workforce, it decreases buyers too. Immigrants are poor and often send money home, so they work but doesn't consume. Kicking them helps a lot.It's obvious that if the workers earn more, the price of products will go up. No one said that SOMEONE doesn't have to pay more. This is a wealth transfer from "everyone" to the workers.

Illegal immigrants not allowed to work, but they do. Usually not in supermarkets, but in agriculture, small businesses and housework. They displace domestic workers in these areas, so they all go to supermarkets and factories driving the wages down.

Zoltan Dabaros:"...and growing the business is really difficult without available workforce."

As it SHOULD be. A business doesn't HAVE to grow. It WANTS to grow. but citizens NEED jobs. The applicable market force is that as technical workers are in demand and wages rocket up, citizens will seek this training to fill them. There is a short term shortage, but the market will fix it if allowed to.

Anonymous:You're arguing for efficiency. Efficiency is good? But only when used in context. When efficiency is the ONLY FACTOR, you enter a dystopic future where only automation (Or it's human cousin, "immigration" from lesser yoked countries.) has "jobs."

Your citizens NEED jobs, if your technology base is small scale agriculture (To use just one example.), then importing cheap food is FAR more efficient, but obliterates your entire work force and forces them into slums on the outskirts of cities.

You cannot engineer a society, it must rise organically from what's available to it.

Any rapid shock is going to be very bad for agriculture depending on what time of year its done as they'd have a hard time replacing enough agricultural harvest workers on short notice. Or simply getting enough workers who know how to harvest thing without fucking things up on short notice. Could result in a lot of unpicked harvest rotting in the field.

There's another way to increase salary. Education. It's the long expensive way, but it's the one that has the most long term growth. It's why HB1s are such a big deal in America and elsewhere. We suck in an inordinate amount of the highest skilled and educated workforce in comparison to our population. We do that by offering them a bucket load of money in salary. Every time you use a USB device, that happened because we gave an HB1 to an Indian immigrant at Intel that created an invention, which in turn created jobs and higher salaries to produce his invention, and finally made the US even more bucket loads of money than it spent.

That money was created because we invested in an educated workforce. I'm using visas btw because you're talking about immigration. But it's the same thing for native workers. Education creates higher salary jobs. The more educated the workforce, the higher wages it'll have when competing on the global market. It's also stable growth, it takes a whole lot of effort to educate a population. It is not something all countries are going to want to expend the effort, money, and time to do. And even if they do, they cannot guarantee they'll match the same results in standard of education.

China for instance has an education problem. A great big huge one. They do well on global tests rankings, but it's because they cherry pick the schools. They can turn out a few very good students, but their education system as a whole is a abysmal. Because of that they're having a problem in trying to move from an unskilled labor force into a skilled labor force. Their overall education standards are just too low to allow the country as a whole to progress passed repetitive factory work a monkey could do.

@Halycon: true, but irrelevant. At the moment there is an uneducated blue collar workforce with bills to pay that has to be dealt with some way. Are you suggesting to put them in schools for 5 years? Who will pay their bills?

Remember that people are also consumers. Higher wages might translate to higher prices (internally) and loss of competitiveness when it comes to exports. Moreover, you are ignoring the effect of technology. Past a certain point, employers might prefer to 'employ' robots whose upfront cost is larger, but they demand no salary, do not file for lawsuits, don't go on strike, and don't leave to work in another country.

You contradicted yourself.An immigrant will spend the money he earns, just like everyone else, creating jobs in the process, so he is not stealing jobs, right?Right! The problem is, he will only create low paid jobs, mainly in retail and food production, as being a minimum wage earner he can't afford anything else.The resolution is not to stop immigration, it is to make sure the immigrants are representative for the whole society. The immigrants, as a group, should be earning average wages.Immigration, no matter their income, strengthens the state, as it makes the country more powerful with more human capital. It improves the economy as a whole (if the immigrants work), just like free trade does. It does not, however, strengthen the position of every citizen of said State.This is why "elites" want immigration to increase the State (which they own) while populists want to cut it, to improve the common Joe's position.

@Andru: not really. They earn very low and they send money home, so they consume little.

@Slawomir: theoretically yes, if the immigrants are mirror images of the citizens, you just doubled the country. But immigration typically happens in the minimum wage and illegally-sub-mimimum wage jobs. It's like creating a mirror image of every lowly paid citizen. No thanks.

In general I agree about wages being driven down by *illegal* immigration, but only because these workers are not in a position to demand anything, or report labor violations. But this would mostly be limited to wages in industries where they would hire these workers, meaning that deporting these people would generally only affect the industries they are in.

Don't get me wrong, I understand that if 10 million people are removed from the labor market there will be a broad impact.

I don't necessarily disagree with the following point, but the sword cuts both ways:

"Also, people aren't just workers, they are also consumers, creating further jobs, so jobs will never run out."

at odds with:

"The reason why immigrants must be evicted in a swift, shock-like move is to create worker shortage."

So if consumers create jobs, and jobs will never run out (?!) wouldn't removing consumers also remove jobs (demand)?

I do get your point, I and do think for of all Trump's bumbling idiocy (outside of this topic), enforcing immigration laws could raise wages. I also think his infrastructure package (which looks very much like the what the Democrats were trying to get through under Obama) will probably create a bunch of jobs also.

The effect of enforcing immigration laws will do nothing (on it's own) to stem the tide of lost manufacturing jobs, or jobs lost to automation. As long as the US wants to send it's businesses into battle with countries that are playing by different rules (no environmental laws, labor laws etc. Mainly talking about China) the outcome is going to remain the same.

If illegal immigration is a large problem in which the proportional response is perceived to initially spend millions in preventions which will only minimally reduce the symptom and not cause, wouldnt it also stand to reason that, proportionately, we should heavily fine or arrest those employing illegal workers?

When combatting drugs, sex rings, piracy, etc. It's more cost effective to attack distributors: dealers, pimps, file sharing hosts. We still fine the user, the prostitute, and the pirate, but way less than the people distributing.

But you must know that in a free market, this kind of imbalance cannot last. Sure, at first employees will be happy with the higher salaries. However, such a worker imbalance will cause some companies to close, and entrepreneurs will turn into job seekers, balancing things out and driving down salaries.

As somebody else already said, the problem are not the (illegal) immigrants, but the fact that they can easily be abused.

One simple suggestion I once read (not without its own problems): stop making them illegal (increasing USA's population by 3% shouldn't break the economy). For example, there is an Italian village (Riace) which only thrives due to immegrants, so maybe try to move them to where they are more useful, instead of turning them down.

Or more general: Stop the abuse (drive-by suggestion: offer (selected?) immigrant whistleblowers immunity so that instead fearing, they *gain* when they report), so it becomes high risk for employers to abuse.

Of course these are raw ideas, but there are more options than throwing all the people out (which assume there is a land that will take them (back)).

The idea that education increases earnings is a myth. In reality those with high earning potential also have high education potential, and must be 'educated' because all their professions are credential-gated due to government interference.

GDP increases fine without education increases, and the recently increasing college grad rate has done nothing for GDP. University is massive waste of time and money for all but maybe 5% of the population...except the part where it's basically illegal to have a non-shitty job without a degree.

The points about illegal non tax-paying are okay, since they do indeed hurt more than they bring to the table.

But to also decrease the legal immigration artificially is nonsense. I feel you confuse real world economy with game economy.

There is no such thing as an easy answer. Your idea completely ignores pretty much social and monetary politics.

Social problems include: brain drain (a lot of countries do need to "import" human capital in high education fields), pension systems, demographic change (birth rates in many countries are down the hill)

Monetary problems include: higher wages -> higher prices -> higher price level -> new income/new price level = probably the people are not better of in real prices. (this is true for the mid to long term in a price restricted economy)

Those are just the first things that come to my head, but they already show: your idea is pretty simplistic and really not viable out of a dumbed down model of the real world. I would say: do what you are good at and do game economy but your real world economy ideas are.. just off.

The issue isn't primarily immigration. But yes that does compound low wages and low wages are bad for innovation, productivity and the tax take for services. An interesting study found that the number of automated car washes has reduced in the UK over the last 10 years or so whereas the number of unregulated hand car washes has increased. Essentially a scenario where lack of enforced regulation results in employers throwing bodies rather than innovation at the problem. Unrestricted immigration gives them easy access to the raw materials but it is something that is happening anyway. This isn't progress and is arguably the rebirth of feudalism.